Every time you receive a tax slip, the issuer sends a copy to Canada Revenue Agency (CRA). So just because you don’t report your income, whether it was taxed or not, does not mean that the CRA is not aware of it. These tax slips are issued for employment income, contract income, an RRSP that you cashed in, investment income, etc. This means that even if you moved and didn’t receive a tax slip and forgot to include it on your return the CRA has it. This can lead to a tax audit or investigation.
Sometimes misreporting or failure to report income is intentional; more often it is not. For example, many individuals are unaware that they must report any withdrawn RRSPs for a given tax year. Since this is income, you are required by law to report it – specifically because you are taxed on this withdrawn money. If the CRA finds out that you failed to report withdrawn RRSPs, not only will you be assessed to pay the tax debt but you will also be assessed penalties and interest.
Even that income that you think will never be reported might have been. If you own your own business or work as a contractor, and tax you extract from others has to be reported. For example, a contractor is hired for home renovations. He charges the property owner HST. The property owner will claim the HST as an input tax credit – meaning that even if the contractor did not remit the tax HST to the CRA, his client triggered the connection back when the client made the claim. This means that the CRA, thanks to this claim, is well aware that you have income and an HST debt, even if you have not reported it.
Tax slips are not the only way for the CRA to find out about your earnings, regardless of whether you report them or not. Another common tax audit trigger is when someone else, having paid you in the past, is being audited. If a supplier or client is being audited, a thorough investigation of their tax filings, income and expenses will be conducted. This means that they can uncover payments for invoices or invoices issued to you and if they have questions it could lead to you being audited. CRA auditors are usually well trained and follow the trail – from your client’s/supplier’s books to you.
Some contractors don’t realize that if they earn more than $30,000 in a year that they have to collect and remit HST. When attempting to file on-time many are stunned to learn that they have a large HST liability.
The CRA Snitch Line is also another important factor in the CRA’s arsenal of discovery. Anyone can call the CRA Snitch Line and report an individual’s or business’s behaviour as it relates to non-compliance and their taxes, so even if no tax slips have been filed, or no one else is being audited, it doesn’t mean that your past tax mistakes are going to remain a secret from CRA. Ex-spouses, ex-tenants (say you rented the basement), ex-business partners and any other disgruntled person you had business dealings with can turn on you via the Snitch Line.
Protect yourself from being audited as a result of submitted tax slips, the audit of other people or the Snitch Line. Fix your tax problems before it gets to this point because once CRA catch you your opportunity to resolve fairly goes way down.
For more information about protecting yourself from unknown tax slips and being audited, please contact Tax Solutions Canada today by calling 1.888.868.1400 or visiting us online at www.taxsolutionscanada.com.